Shutdown Economics: 2,000 Lost CT Jobs? No Easy Formula, No Crisis For Now

October 04, 2013|Dan Haar

Anne S. Evans had more than just a few loose ends to tie up by noon Tuesday, the lockout deadline. As head of the U.S. Commerce Department's export assistance center in Middletown, she had conference calls and other matters for a trade delegation from Connecticut to Italy in less than two weeks.

The federal government shutdown, if it continues, could force Connecticut firms to meet would-be customers in law offices instead of the embassy in Rome and the consulate in Turin. It also would force Evans, organizer of the state's trade missions, to stay behind.

"The mission is going forward," she promised. "It will be staffed in one way or another."

It's not every day that an American group travels to Italy under a government that's more dysfunctional than that of its hosts, with their perpetual chaos. At least the lights are on in Rome, more than we can claim at many U.S.agencies.

That is certainly an embarrassment and an inconvenience. Is it also an economic concern?

As the shutdown settled into its first day, as federal workers reluctantly walked away from their jobs, figuring out how much it threatens the economy was not as easy as it might seem. Sure, we could add up the lost wages for 800,000 federal workers, several thousand in Connecticut, and calculate the cost of the ripple effects.

But who's to say that if an Italian aerospace contractor picks a machine shop in France instead of AdChem Manufacturing Technologies of Manchester — or decides to invest in Toulouse instead of in Tolland — that the shutdown wasn't a small part of the reason?

And if a manufacturer from Danbury has a hitch because he doesn't fax the right document to South Korea, because the export-assistance office was closed, how does that affect the Connecticut economy? What if a Windsor software developer doesn't get her Small Business Administration-backed loan in time to ramp up for a project?

We'll never know. And yet events like that, multiplied across the tens of millions of daily interactions between business and the bureaucracy, could mean more than the unpaid wages.

"We in our world would never be successful if we ran our businesses the way the government is running theirs," said Michael Polo, the AdChem president.

If the shutdown were to last just a few days, it would cost the state about 300 jobs — too small a number to measure, according to Steven Lanza, an economist at UConn. If it drags on for a month, the estimate rises to 2,000 jobs, Lanza said, basing his number on a report by Moody's Economy.com, which said that a monthong shutdown would cut U.S. economic growth by 60 percent for the final three months of 2013.

That 2,000 total includes hires that employers don't make and the cumulative effect of pieces of jobs disappearing as money flows, or doesn't flow, through the system. And even that number of jobs, bad as it sounds, is within the monthly up-and-down in a state that's on pace to add about 20,000 positions in 2013.

The real economic crisis, Lanza and other economists say, would come if the U.S. government were to actually default on its debt. That could throw the nation back into recession and cost Connecticut tens of thousands of jobs.

For now, Polo, Evans and others are downplaying the economic effects of the shutdown — as long as Democrats and Republicans in Congress find a way out in the next couple of weeks or sooner, and certainly as long as they meet the Oct. 17 deadline to raise the debt ceiling.

"If they played well together, would it be better? Yes. But at this juncture, it's not really going to affect our plans for growth," said Polo, whose business has 49 employees. "The military contracts we have, they're already funded."

"There will not be any disruption in the short term," said Jane Goldsmith, a spokeswoman at Sonalysts Inc., a Waterford technology firm with 200 local employees that generates much of its revenue from Navy and Air Force contracts.

A look at the big picture shows why it's so hard to measure the economic cost of the shutdown. There are 9,000 federal employees in Connecticut, including civilian workers at the Groton submarine base and Coast Guard Academy. Let's say 5,000 of them are deemed nonessential and thrown into furloughs, and let's say they average $75,000 a year in pay.

A four-week shutdown would mean the loss of $29 million. Now let's double that amount to account for lost pay to vendors in Connecticut, and double it again to account for the so-called multiplier effect of spending in the system.

That's $115 million: Just one two-thousandth of the Connecticut economy, and also the amount the state government spends every two days. It could equal 1,600 jobs, but that depends on factors such as how the economy was doing before the shutdown. And much of that lost money will return to the system, especially if Congress votes to give furloughed workers back pay, as it has in the past.